Why Is Flood Insurance Not A Part Of Homeowner’S Insurance

Floods can devastate entire communities or regions.

Many homeowners believe that the homeowner’s insurance policy they purchase provides coverage against all perils. They mistakenly hold the impression that since fires, landslides and mudslides, earthquakes, hurricanes and floods are perils, the policy includes them. Few people read and understand the lengthy policy document, especially the exclusions. The list of what is not covered typically includes floods and several other perils.

What Constitutes a Flood?

A flood is the rising and overflowing of a body of water onto land that is normally dry. In the world of insurance, the fact that water is rising is an important factor. Any number of events can cause water damage, but flood damage is linked with rising water. A flood is both temporary and general, in that it affects more than a single property. Floods can cause widespread damages and devastating loss to a region. Government maps determine which zones are most prone to flooding based on historical events.

Flood Coverage and Homeowners Insurance

Approximately 90 percent of all the nation’s disasters include flooding, according to studies performed by the National Flood Insurance Program (NFIP). Private providers of homeowners’ and other insurance coverages typically do not cover flooding due to its unpredictable and catastrophic nature. The United States federal government developed NFIP to give homeowners with properties residing in flood-risk areas an opportunity to insure against loss from flood damage.

Purchasing Flood Insurance

The federal government determines community eligibility for flood insurance through NFIP. Homeowners should purchase flood insurance long before a flood threatens; generally, a waiting period of 30 days is required before flood insurance becomes effective. The exception to the waiting period is if the initial purchase of the flood insurance occurs while the homeowner is making a new loan on the property, extending an existing loan or otherwise renewing the home loan. Homeowners purchase the coverage through private insurers. Insurers pay claims directly when a policyholder experiences a loss, and the government reimburses the insurers.

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The Way Flood Insurance Works

The cost of flood insurance varies just as the cost of homeowners insurance varies. Some factors that help determine cost are property location, elevation and construction type. Some areas are at greater risk for flooding than others, and the cost of flood insurance will vary accordingly. The converse is also true. Properties located in low flood risk zones may get a price break and pay far less than those in high-risk areas.